FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X](X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarter ended March 30,June 29, 2001
OR
[_]( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission File Number 1-8022
CSX CORPORATION
(Exact name of registrant as specified in its charter)
Virginia 62-1051971
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
901 East Cary Street, Richmond, Virginia 23219-4031
(Address of principal executive offices) (Zip Code)
(804) 782-1400
(Registrant's telephone number, including area code)
No Change
(Former name, former address and former fiscal year, if changed since last
report.)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X](X) No [_]( )
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of March 30,June 29, 2001: 213,395,907213,072,061 shares.
-1-
CSX CORPORATION
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED MARCH 30,JUNE 29, 2001
INDEX
Page Number
PART I. FINANCIAL INFORMATION
Item 1:
Financial Statements
1. Consolidated Statement of Earnings-
Quarters and Six Months Ended March 30,June 29, 2001 and March 31,June 30, 2000 3
2. Consolidated Statement of Cash Flows-
QuartersSix Months Ended March 30,June 29, 2001 and March 31,June 30, 2000 4
3. Consolidated Statement of Financial Position-
At March 30,June 29, 2001 and December 29, 2000 5
Notes to Consolidated Financial Statements 6
Item 2:
Management's Discussion and Analysis of Results of
Operations and Financial Condition 1623
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 32
Item 6. Exhibits and Reports on Form 8-K 2433
Signature 2433
-2-
CSX CORPORATION AND SUBSIDIARIES
Consolidated Statement of Earnings
(Millions of Dollars, Except Per Share Amounts)
(Unaudited)
QuartersQuarter Ended -----------------------------------
MarchSix Months Ended
------------------------------ ------------------------------
June 29, June 30, March 31,June 29, June 30,
2001 2000 --------------2001 2000
------------ ------------- ------------ -------------
Operating Revenue $ 2,0252,057 $ 2,0342,071 $ 4,082 $ 4,105
Operating Expense 1,836 1,860
--------------1,792 1,882 3,628 3,742
------------ ------------- ------------ -------------
Operating Income 265 189 174454 363
Other Expense 31 5Income (Expense) 34 24 3 19
Interest Expense 131 134
--------------132 139 263 273
------------ ------------- ------------ -------------
Earnings beforefrom Continuing Operations
Before Income Taxes 27 35167 74 194 109
Income Tax Expense 7 10
--------------59 26 66 36
------------ ------------- ------------ -------------
Earnings before Discontinued Operations 20 25108 48 128 73
Earnings from Discontinued Operations,
Net of TaxTaxes - 4
--------------7 - 11
------------ ------------- ------------ -------------
Net Earnings $ 20108 $ 29
==============55 $ 128 $ 84
============ ============= ============ =============
Earnings Per Share:
Before Discontinued Operations $ .100.51 $ .120.23 $ 0.60 $ 0.35
Earnings from Discontinued Operations - .02
--------------0.03 - 0.05
------------ ------------- ------------ -------------
Including Discontinued Operations $ .100.51 $ .14
==============0.26 $ 0.60 $ 0.40
============ ============= ============ =============
Earnings Per Share, Assuming DilutionDilution:
Before Discontinued Operations $ .100.51 $ .120.23 $ 0.60 $ 0.35
Earnings from Discontinued Operations - .02
--------------0.03 - 0.05
------------ ------------- ------------ -------------
Including Discontinued Operations $ .100.51 $ .14
==============0.26 $ 0.60 $ 0.40
============ ============= ============ =============
Average Common Shares Outstanding
(Thousands) 211,299 211,192
==============211,687 211,016 211,491 211,104
============ ============= ============ =============
Average Common Shares Outstanding
Assuming Dilution (Thousands) 211,897 212,015
==============212,464 211,211 212,180 211,588
============ ============= ============ =============
Cash Dividends Paid Per Common Share $ .300.30 $ .30
==============0.30 $ 0.60 $ 0.60
============ ============= ============ =============
See accompanying Notes to Consolidated Financial Statements.
-3-
CSX CORPORATION AND SUBSIDIARIES
Consolidated Statement of Cash Flows
(Millions of Dollars)
(Unaudited)
QuartersSix Months Ended
------------------------------------
March---------------------------------
June 29, June 30, March 31,
2001 2000
------------------------- -------------
OPERATING ACTIVITIES
Net Earnings $ 20128 $ 2984
Adjustments to Reconcile Net Earnings to Net Cash Provided:
Depreciation 157 147312 293
Deferred Income Taxes 4 232 31
Equity in Conrail Earnings - Net (5) (6)(9) (4)
Other Operating Activities 1 33(1) 52
Changes in Operating Assets and Liabilities
Accounts Receivable 10 6(33) 68
Other Current Assets (18) (39)(15) (80)
Accounts Payable (22) (21)(71) (161)
Other Current Liabilities (147) (152)
-----------(78) (287)
-------------- -------------
Net Cash UsedProvided (Used) by Operating Activities - (1)
-----------265 (4)
-------------- -------------
INVESTING ACTIVITIES
Property Additions (183) (107)(420) (422)
Short-Term Investments - Net (83) (23)11 70
Other Investing Activities 1 11
-----------(8) 16
-------------- -------------
Net Cash Used by Investing Activities (265) (119)
-----------(417) (336)
-------------- -------------
FINANCING ACTIVITIES
Short-Term Debt - Net (271) (81)(228) (105)
Long-Term Debt Issued 500 -187
Long-Term Debt Repaid (48) (34)(118) (72)
Cash Dividends Paid (64) (66)(128) (131)
Other Financing Activities 8 (32)
-----------(37)
-------------- -------------
Net Cash Provided (Used) by Financing Activities 125 (213)
-----------34 (158)
-------------- -------------
Net Decrease in Cash and Cash Equivalents (140) (333)(118) (498)
CASH, CASH EQUIVALENTS AND SHORT-TERM
INVESTMENTS
Cash and Cash Equivalents at Beginning of Period 261 626
------------------------- -------------
Cash and Cash Equivalents at End of Period 121 293143 128
Short-Term Investments at End of Period 500 373
-----------413 267
-------------- -------------
Cash, Cash Equivalents and Short-Term
Investments at End of Period $ 621556 $ 666
===========395
============== =============
See accompanying Notes to Consolidated Financial Statements.
-4-
CSX CORPORATION AND SUBSIDIARIES
Consolidated Statement of Financial Position
(Millions of Dollars)
(Unaudited)
March 30,June 29, December 29,
2001 2000
------------- ------------------------ ------------
ASSETS
Current Assets
Cash, Cash Equivalents and Short-Term Investments $ 621556 $ 684
Accounts Receivable 840890 850
Materials and Supplies 269268 245
Deferred Income Taxes 122114 121
Other Current Assets 148149 146
------------- ------------------------ ------------
Total Current Assets 2,0001,977 2,046
Properties 17,98118,116 17,839
Accumulated Depreciation (5,297)(5,375) (5,197)
------------- ------------------------ ------------
Properties-Net 12,68412,741 12,642
Investment in Conrail 4,6734,677 4,668
Affiliates and Other Companies 344353 362
Other Long-Term Assets 737761 773
------------- ------------------------ ------------
Total Assets $ 20,43820,509 $ 20,491
============= ======================== ============
LIABILITIES
Current Liabilities
Accounts Payable $ 1,0571,015 $ 1,079
Labor and Fringe Benefits Payable 410418 405
Current Portion of Casualty, Environmental and
Other Reserves 251250 246
Current Maturities of Long-Term Debt 188937 172
Short-Term Debt 478171 749
Income and Other Taxes Payable 250289 372
Other Current Liabilities 256261 257
------------- ------------------------ ------------
Total Current Liabilities 2,8903,341 3,280
Casualty, Environmental and Other Reserves 745740 755
Long-Term Debt 6,2125,770 5,810
Deferred Income Taxes 3,3913,411 3,384
Other Long-Term Liabilities 1,2241,215 1,245
------------- ------------------------ ------------
Total Liabilities 14,46214,477 14,474
------------- ------------------------ ------------
SHAREHOLDERS' EQUITY
Common Stock, $1 Par Value 213 213
Other Capital 1,4701,482 1,467
Retained Earnings 4,293 4,337 ------------- -------------4,337
----------- ------------
Total Shareholders' Equity 5,9766,032 6,017
------------- ------------------------ ------------
Total Liabilities and Shareholders' Equity $ 20,43820,509 $ 20,491
============= ======================== ============
See accompanying Notes to Consolidated Financial Statements.
-5-
CSX CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
(All Tables in Millions of Dollars, Except Per Share Amounts)
NOTE 1. BASIS OF PRESENTATION
In the opinion of management, the accompanying consolidated financial
statements contain all adjustments necessary to present fairly the financial
position of CSX Corporation and subsidiaries (CSX or the "company") at March 30,June 29,
2001 and December 29, 2000, and the results of its operations for the quarters
and six months ended June 29, 2001 and June 30, 2000, and its cash flows for the
quarterssix months ended March 30,June 29, 2001 and March 31,June 30, 2000, such adjustments being of a
normal recurring nature. Certain prior-yearprior year data have been reclassified to
conform to the 2001 presentation.
While the company believes that the disclosures presented are adequate to
make the information not misleading, it is suggested that these financial
statements be read in conjunction with the financial statements and the notes
included in the company's latest Annual Report and Form 10-K.
CSX follows a 52/53 week fiscal reporting calendar. Fiscal year 2001
consists of 52 weeks ending on December 28, 2001. Fiscal year 2000 consisted of
52 weeks ended December 29, 2000. The financial statements presented are for the
13-week quarterquarters ended MarchJune 29, 2001 and June 30, 2000, the 26-week periods
ended June 29, 2001 the 13-week quarter ended March 31,and June 30, 2000, and as of December 29, 2000.
Comprehensive income approximates net earnings for all periods presented in
the accompanying consolidated statement of earnings.
NOTE 2. EARNINGS PER SHARE
Earnings per share are based on the weighted average number of common shares
outstanding, as defined by Financial Accounting Standards Board (FASB) Statement
No. 128, "Earnings per Share," for the fiscal quarters and six months ended
March 30,June 29, 2001 and March 31,June 30, 2000. Earnings per share, assuming dilution, are
based on the weighted average number of common shares outstanding adjusted for the
effect of dilutive potential common shares outstanding that were dilutive during the period,
principally arising from employee stock plans. For the fiscal quarters ended
March 30,June 29, 2001 and March 31,June 30, 2000, dilutive potential common shares that weretotaled
.8 million and .2 million, respectively. For the six months ended June 29, 2001
and June 30, 2000, potentially dilutive shares totaled 0.6.7 million and
0.8.5 million, respectively.
Certain potential common shares outstanding at March 30,June 29, 2001 and March 31,June 30,
2000 were not included in the computation of earnings per share, assuming
dilution, since their exercise prices were greater than the average market price
of the common shares during the period and, accordingly, their effect is
antidilutive. These shares totaled 17.019.3 million at a weighted-average exercise
price of $43.76$43.46 per share at March 30,June 29, 2001 and 23.926.2 million with a
weighted-
averageweighted-average exercise price of $41.89$40.07 per share at March 31,June 30, 2000.
-6-
CSX CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited), Continued
(All Tables in Millions of Dollars, Except Per Share Amounts)
NOTE 3. INVESTMENT IN AND INTEGRATED RAIL OPERATIONS WITH CONRAIL
Background
- ----------
CSX and Norfolk Southern Corporation (Norfolk Southern) completed the
acquisition of Conrail Inc. (Conrail) in May 1997. Conrail owns the primary
freight railroad system serving the northeastern United States, and its rail
network extends into several mid-westernmidwestern states and into Canada. CSX and Norfolk
Southern, through a jointly owned acquisition entity, hold economic interests in
Conrail of 42% and 58%, respectively, and voting interests of 50% each. CSX and
Norfolk Southern received regulatory approval from the Surface Transportation
Board (STB) to exercise joint control over Conrail in August 1998 and
subsequently began integrated operations over allocated portions of the Conrail
lines in June 1999.
-6-
CSX CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited), Continued
(All Tables in Millions of Dollars, Except Per Share Amounts)
NOTE 3. INVESTMENT IN AND INTEGRATED RAIL OPERATIONS WITH CONRAIL, Continued
The rail subsidiaries of CSX and Norfolk Southern operate their respective
portions of the Conrail system pursuant to various operating agreements that
took effect on June 1, 1999. Under these agreements, the railroads pay operating
fees to Conrail for the use of right-of-way and rent for the use of equipment.
Conrail continues to provide rail service in certain shared geographic areas for
the joint benefit of CSX and Norfolk Southern for which it is compensated on the
basis of usage by the respective railroads.
Conrail Financial Information
- -----------------------------
Summary financial information for Conrail for its fiscal periods ended March 31,June
30, 2001 and 2000, and at December 31, 2000, is as follows:
Quarters Ended -----------------------------------------
March 31, March 31,Six Months Ended
June 30, June 30,
-------------------------- ----------------------------
2001 2000 --------------- -------------------2001 2000
----------- ---------- ----------- ------------
Income Statement Information:
Revenues $ 233 $ 259$229 $246 $462 $505
Income fromFrom Operations 64 6076 52 140 112
Net Income 45 6547 30 92 96
As Of
-----------------------------------------
March 31,-------------------------------------
June 30, December 31,
2001 2000
--------------- --------------------------------- -----------------
Balance Sheet Information:
Current Assets $ 608718 $ 520
Property and Equipment and Other Assets 7,4637,390 7,540
Total Assets 8,0718,108 8,060
Current Liabilities 476457 435
Long-Term Debt 1,2081,199 1,229
Total Liabilities 4,0244,015 4,078
Stockholders' Equity 4,0474,093 3,982
-7-
CSX CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited), Continued
(All Tables in Millions of Dollars, Except Per Share Amounts)
NOTE 3. INVESTMENT IN AND INTEGRATED RAIL OPERATIONS WITH CONRAIL, Continued
Conrail Financial Information, Continued
- ----------------------------------------
Conrail's results for the quarter ended March 31, 2000 benefited from a non-
recurring gain on the sale of property of $61 million, $37 million after-tax.
CSX's Accounting for its Investment in and Integrated Rail Operations with
- -----------------------------------------------------------------------------------------------------------------------------------------------------
Conrail
- -------
CSX and Norfolk Southern assumed substantially all of Conrail's customer
freight contracts atupon the June 1999 integration date. CSX's rail and intermodal
operating revenues includerevenue since that date includes revenue from traffic previously
moving onrecognized by Conrail. Operating expenses reflect costs incurred to operate the
former Conrail lines. Rail operating expenses also include an expense category,
"Conrail Operating Fee, Rent and Services," which reflects payment to Conrail
for the use of right-
of-wayright-of-way and equipment, as well as charges for
transportation, switching, and terminal services in the shared areas Conrail
operates for the joint benefit of CSX and Norfolk Southern. This expense
category also includes amortization of the fair value write-up arising from the
acquisition of Conrail, as well as CSX's proportionate share of Conrail's net
income or loss recognized under the equity method of accounting.
-7-
CSX CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited), Continued
(All Tables in Millions of Dollars, Except Per Share Amounts)
NOTE 3. INVESTMENT IN AND INTEGRATED RAIL OPERATIONS WITH CONRAIL, Continued
Transactions withWith Conrail
- -------------------------
The agreement under which CSX operates its allocated portion of the Conrail
route system has an initial term of 25 years and may be renewed at CSX's option
for two five-year terms. Operating fees paid to Conrail under the agreement are
subject to adjustment every six years based on the fair value of the underlying
system. Lease agreements for the Conrail equipment operated by CSX cover varying
terms. CSX is responsible for all costs of operating, maintaining, and improving
the routes and equipment under these agreements.
At March 30, 2001 and December 29, 2000, CSX had $4 million and $2 million
respectively, in amounts receivable from
Conrail, principally for reimbursement of certain capital improvement costs.
Conrail advances its available cash balances to CSX and Norfolk Southern under
variable-rate demand loan agreements. At March 30,June 29, 2001 and December 29, 2000,
Conrail had advanced $98$142 million and $40 million, respectively, to CSX under
this arrangement at interest rates of 4.75%4.08% and 5.90%, respectively. CSX also
had amounts payable to Conrail of $104$86 million and $127 million at March 30,June 29, 2001
and December 29, 2000, respectively, representing expenses incurredbillings from Conrail under
the operating, equipment, and shared area agreements.
NOTE 4. DISCONTINUED OPERATIONS
On September 22, 2000, CSX completed the sale of CTI Logistx, Inc., itsit's
wholly-owned logistics subsidiary, for $650 million. The contract logistics
segment is now reported as a discontinued operation and all prior periods in the
statement of earnings have been restated accordingly. Revenues from the contract
logistics segment for the quarter and six month period ended March 31,June 30, 2000 were
$126 million.
-8-
CSX CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited), Continued
(All Tables in Millions of Dollars, Except Per Share Amounts)$131 million and $257 million, respectively.
NOTE 5. SALE OF INTERNATIONAL CONTAINER-SHIPPING ASSETS
In December 1999, CSX sold certain assets comprising Sea-Land's
international liner business to A. P. Moller-Maersk Line (Maersk). In addition
to vessels and containers, Maersk acquired certain terminal facilities and
various other assets and related liabilities of the international liner
business. The agreement with Maersk providedprovides for a post-closing working capital
adjustment to the sales price based on the change in working capital, as defined
in the agreement, between June 25, 1999, and December 10, 1999. The company has
recorded a receivable of approximately $60 million in connection with the
post-
closingpost-closing working capital adjustment and this amount is currently in dispute.
This matter, together with other disputed issues, has been submitted to
arbitration. Management is not yet in a position to assess fully the likely
outcome of this process but believes it will prevail in the arbitrations.arbitration. During
1999, the company recorded a net loss of $360 million, $271 million after-tax,
related to this transaction. Included in this amount were estimated costs to
terminate various contractual obligations of the company. These matters could
affect the determination of the final loss on sale.
-8-
CSX CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited), Continued
(All Tables in Millions of Dollars, Except Per Share Amounts)
NOTE 6. ACCOUNTS RECEIVABLE
The company sells revolving interests in its rail accounts receivable to
public investors through a securitization program and to a financial institutionsinstitution
through commercial paper conduit programs. The accounts receivable are sold,
without recourse, to a wholly-owned, special-purpose subsidiary, which then
transfers the receivables, with recourse, to a master trust. The securitization
and conduit programs are accounted for as sales in accordance with FASB
Statement No. 125140 "Accounting for Transfers and Servicing of Financial Assets
and Extinguishments of Liabilities." Receivables sold under these arrangements
are excluded from accounts receivable in the consolidated statement of financial
position. At March 30,June 29, 2001, the agreements provide for the sale of up to $350
million in receivables through the securitization program and $250 million
through the conduit programs.
At March 30,June 29, 2001 and December 29, 2000, the company had sold $547 million
of accounts receivable; $300 million through the securitization program and
$247 million through the conduit programs. The certificates issued under the
securitization program bear interest at 6% annually and mature in June 2003.
Receivables sold under the conduit programsprogram require yield payments based on
prevailing commercial paper rates plus incremental fees. Losses recognized on
the sale of accounts receivable totaled $12$10 million and $22 million for the
quarter and six months ended June 29, 2001, respectively, and $8 million and
$16 million for the quartersquarter and six months ended MarchJune 30, 2001 and March 31, 2000, respectively.
The company has retained the responsibility for servicing accounts
receivable transferred to the master trust. The average servicing period is
approximately one month. No servicing asset or liability has been recorded since
the fees the company receives for servicing the receivables approximate the
related costs.
In September 2000, the FASB issued Statement No. 140, " Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities."
Statement No. 140 replaces the earlier Statement No. 125 in its entirety. While
the new statement revises certain accounting guidance for transfers of financial
assets, most of the provisions of Statement No. 125 have been carried over
without reconsideration. Statement No. 140 is effective for transfers and
servicing of financial assets occurring after March 31, 2001, but requires
certain disclosures relating to securitizations for fiscal years ending after
December 15, 2000. The accounting provisions of Statement No. 140 will not
impact the company's financial statements.NOTE 7. OPERATING EXPENSE
Quarters Ended Six Months Ended
------------------------------- -------------------------------
June 29, June 30, June 29, June 30,
2001 2000 2001 2000
------------- ------------- ------------- --------------
Labor and Fringe Benefits $ 743 $ 732 $ 1,499 $ 1,480
Materials, Supplies and Other 422 480 846 921
Conrail Operating Fee, Rent and Services 85 101 168 196
Building and Equipment Rent 159 188 322 384
Inland Transportation 84 90 169 173
Depreciation 153 140 308 282
Fuel 146 151 316 306
------------- ------------- ------------- --------------
Total $ 1,792 $ 1,882 $ 3,628 $ 3,742
============= ============= ============= ==============
-9-
CSX CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited), Continued
(All Tables in Millions of Dollars, Except Per Share Amounts)
NOTE 7. OPERATING EXPENSE8. OTHER INCOME (EXPENSE)
Quarters Ended -----------------------------------
MarchSix Months Ended
-------------------------- --------------------------
June 29, June 30, March 31,June 29, June 30,
2001 2000 2001 2000
------------- ----------- ------------- ------------
Labor and Fringe Benefits $ 736 $ 727
Materials, Supplies and Other 459 473
Conrail Operating Fee, Rent & Services 83 95
Building and Equipment Rent 155 188
Inland Transportation 85 83
Depreciation 148 138
Fuel 170 156
------------- -------------
Total $ 1,836 $ 1,860
============= =============
NOTE 8. OTHER EXPENSE
Quarters Ended
--------------------------------
March 30, March 31,
2001 2000
------------ ------------
Interest Income $ 1110 $ 1612 $ 21 $ 28
Income (Loss) from Real Estate and Resort Operations/(1)/ (3) 153 33 50 34
Net Losses from Accounts Receivable Sold (12)(10) (8) (22) (16)
Minority Interest (8) (8)(10) (12) (18) (20)
Equity Losses inLoss of Other Affiliates/(2)/ (16)Affiliates (3) - (19) (5)
Miscellaneous (3)(6) (1) (9) (2)
------------ ---------- ------------ -----------
Total $ (31)34 $ (5)24 $ 3 $ 19
============ ========== ============ ===========
/(1)/ Gross revenue from real estate and resort operations was $25$96 million and
$29$121 million for the quartersquarter and six months ended March 30,June 29, 2001,
respectively, and March 31, 2000,
respectively.
/(2)/ Included in equity losses in other affiliates was the $14$68 million write-
off of an investment in a non-rail affiliate, duringand $97 million for the quarter and six
months ended MarchJune 30, 2001.2000, respectively.
NOTE 9. DEBT AND CREDIT AGREEMENTS
During the quartersix months ended March 30,June 29, 2001, the company issued $500 million
of 6.75% notes due 2011 and reclassified $350 million of outstanding commercial
paper to long-term liabilities as it is now supported by a 5 year $1 billion
line of credit agreement signed in 2011.June of 2001. This reclassification was based
on the company's ability and intent to maintain this debt outstanding for more
than a year. The company also entered into a $500 million one year revolving
credit agreement in June of 2001. Borrowings under these credit agreements
accrue interest at a variable rate based on LIBOR. The company pays annual fees
to the participating banks that may range from 0.01% to 0.23% of total
commitment, depending on its credit rating.
-10-
CSX CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited), Continued
(All Tables in Millions of Dollars, Except Per Share Amounts)
NOTE 10. COMMITMENTS AND CONTINGENCIES
Self-Insurance
- --------------
Although the company obtains substantial amounts of commercial insurance
for potential losses forfrom third-party liability and property damage, reasonable
levels of risk are retained on a self-insurance basis. A portion of the
insurance coverage, a $25 million limit above $100 million per occurrence from
rail and certain other operations, is provided for by a company partially owned
by CSX.
Environmental
- --------------
CSXT-------------
CSX Transportation, Inc. (CSXT), the wholly-owned rail subsidiary of CSX,
is a party to various proceedings involving private parties and regulatory
agencies related to environmental issues. CSXT has been identified as a
potentially responsible party (PRP) at 104106 environmentally impaired sites that
are or may be subject to remedial action under the Federal Superfund statute
(Superfund) or similar state statutes. A number of these proceedings are based
on allegations that CSXT, or its railroad predecessors, sent hazardous
substances to the facilities in question for disposal. Such proceedings arising
under Superfund or similar state statutes can involve numerous other waste
generators and disposal companies and seek to allocate or recover costs
associated with site investigation and cleanup, which could be substantial.
CSXT is involved in a number of administrative and judicial proceedings and
other clean-up efforts at 243238 sites, including the sites addressed under the
Federal Superfund statute or similar state statutes, where it is participating
in the study and/or clean-up of alleged environmental contamination. The
assessment of the required response and remedial costs associated with most
sites is extremely complex. Cost estimates are based on information available
for each site, financial viability of other PRPs, where available, and existing
technology, laws and regulations. CSXT's best estimates of the allocation method
and percentage of liability when other PRPs are involved are based on
assessments by consultants, agreements among PRPs, or determinations by the U.S.
Environmental Protection Agency or other regulatory agencies.
At least once each quarter, CSXT reviews its role, if any, with respect to
each such location, giving consideration to the nature of CSXT's alleged
connection to the location (i.e.(e.g., generator, owner or operator), the extent of
CSXT's alleged connection (i.e.(e.g., volume of waste sent to the location and other
relevant factors),the accuracy and strength of evidence connecting CSXT to the
location, and the number, connection and financial position of other named and
unnamed PRPs at the location. The ultimate liability for remediation can be
difficult to determine with certainty because of the number and creditworthiness
of PRPs involved. Through the assessment process, CSXT monitors the
creditworthiness of such PRPs in determining ultimate liability.
Based upon such reviews and updates of the sites with which it is involved,
CSXT has recorded, and reviews at least quarterly for adequacy, reserves to
cover estimated contingent future environmental costs with respect to such
sites. The recorded liabilities for estimated future environmental costs at March 30,June
29, 2001, and Dec.December 29, 2000, were $38 million and $41 million.million, respectively.
These recorded liabilities, which are undiscounted, include amounts representing
CSXT's estimate of unasserted claims, which CSXT believes to be immaterial. The
liability has been accrued for future costs for all sites where the company's
obligation is probable and where such costs can be reasonably estimated.
-11-
CSX CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited), Continued
(All Tables in Millions of Dollars, Except Per Share Amounts)
NOTE 10. COMMITMENTS AND CONTINGENCIES, Continued
Environmental, Continued
- ------------------------
been accrued for future costs for all sites where the company's obligation is
probable and where such costs can be reasonably estimated. The liability includes future costs for remediation and restoration of sites as
well as any significant ongoing monitoring costs, but excludes any anticipated
insurance recoveries. The majority of the March 30,June 29, 2001 environmental liability
is expected to be paid out over the next five to seven years, funded by cash
generated from operations.
The company does not currently possess sufficient information to reasonably
estimate the amounts of additional liabilities, if any, on some sites until
completion of future environmental studies. In addition, latent conditions at
any given location could result in exposure, the amount and materiality of which
cannot presently be reliably estimated. Based upon information currently
available, however, the company believes that its environmental reserves are
adequate to accomplish remedial actions to comply with present laws and
regulations, and that the ultimate liability for these matters will not
materially affect its overall results of operations andor financial condition.
New Orleans Tank Car Fire
- ---------------------------------------------------
In September 1997, a state court jury in New Orleans, Louisiana returned a
$2.5 billion punitive damages award against CSX Transportation, Inc. (CSXT), the
wholly-owned rail subsidiary of CSX.CSXT. The award was made in a
class-action lawsuit against a group of nine companies based on personal
injuries alleged to have arisen from a 1987 fire. The fire was caused by a
leaking chemical tank car parked on CSXT tracks and resulted in the 36-hour
evacuation of a New Orleans neighborhood. In the same case, the court awarded a
group of 20 plaintiffs compensatory damages of approximately $2 million against
the defendants, including CSXT, to which the jury assigned 15 percent of the
responsibility for the incident. CSXT's liability under that compensatory
damages award is not material, and adequate provision has been made for the
award.
In October 1997, the Louisiana Supreme Court set aside the punitive damages
judgment, ruling the judgment should not have been entered until all liability
issues were resolved. In February 1999, the Louisiana Supreme Court issued a
further decision, authorizing and instructing the trial court to enter
individual punitive damages judgments in favor of the 20 plaintiffs who had
received awards of compensatory damages, in amounts representing an appropriate
share of the jury's award. The trial court on April 8, 1999 entered judgment
awarding approximately $2 million in compensatory damages and approximately $8.5
million in punitive damages to those 20 plaintiffs. Approximately $6.2 million
of the punitive damages awarded were assessed against CSXT. CSXT then filed
post-trial motions for a new trial and for judgment notwithstanding the verdict
as to the April 8 judgment.
The new trial motion was denied by the trial court in August 1999. On
November 5, 1999, the trial court issued an opinion that granted CSXT's motion
for judgment notwithstanding the verdict and effectively reduced the amount of
the punitive damages verdict from $2.5 billion to $850 million. CSXT believes
that this amount (or any amount of punitive damages) is unwarranted and intends
to pursue its full appellate remedies with respect to the 1997 trial as well as
the trial judge's decision on the motion for judgment notwithstanding -12-
CSX CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited), Continued
(All Tables in Millions of Dollars, Except Per Share Amounts)
NOTE 10. COMMITMENTS AND CONTINGENCIES, Continued
New Orleans Tank Car Fire, Continued
- ------------------------------------
the
verdict. The compensatory damages awarded by the jury in the 1997 trial were
also substantially reduced by the trial judge. A judgment reflecting the
$850 million punitive award has been entered against CSXT. CSXT has obtained and
posted an appeal bond, in the amount of $895 million, which will allowhas allowed it to appeal the 1997 compensatory and
punitive awards, as reduced by the trial judge.
-12-
CSX CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited), Continued
(All Tables in Millions of Dollars, Except Per Share Amounts)
NOTE 10. COMMITMENTS AND CONTINGENCIES, Continued
A trial for the claims of 20 additional plaintiffs for compensatory damages
began on May 24, 1999. In early July, 1999, the jury in that trial rendered verdicts
totaling approximately $330 thousand in favor of eighteen of those twenty
plaintiffs. Two plaintiffs received nothing; that is, the jury found that they
had not proved any damages. Management believes that this result, while still
excessive, supports CSXT's contention that the punitive damages award was
unwarranted.
In 1999, six of the nine defendants in the case reached a tentative
settlement with the plaintiffs group. The basis of thatthe settlement is an
agreement that all claims for compensatory and punitive damages against the six
defendants would be compromised for the sum of $215 million. ThatThe settlement was
approved by the trial court in early 2000.
In 2000, the City of New Orleans was granted permission by the trial court
to assert an amended claim against CSXT, including a newly asserted claim for
punitive damages. The City's case was originally filed in 1988, and while based
on the 1987 tank car fire, is not considered to be part of the class action.
Oral argument inOn June 27, 2001, the Louisiana Court of AppealsAppeal for the Fourth Circuit
affirmed the judgment of the trial court, which judgment reduced the punitive
damages verdict from $2.5 billion to $850 million. CSXT has moved the Louisiana
Fourth Circuit Court for rehearing of certain issues raised in its appeal. CSXT
intends to pursue an appeal with regard to CSXT'sthe Louisiana Supreme Court. While this appeal
was held on January 12, 2001. A ruling is expected some
time this year. Anynot an appeal of right, CSXT believes that there are substantial grounds for
review beyond that court is by discretionary writ.the Louisiana Supreme Court.
CSXT continues to pursue an aggressive legal strategy. At the present time,
management is not in a position to determine whether the resolution of this case
will have a material adverse effect on the Company's financial position or
results of operations in any future reporting period.
ECT Dispute
- -----------
Recently, CSX received a claim in an earlier period amounting to approximately $180
million plus interest from Europe Container Terminals bv (ECT), owner of the
Rotterdam Container Terminal previously operated by Sea-Land prior to its sale
to Maersk in December 1999. ECT has claimed that the sale of the international
liner business to Maersk resulted in a breach of the Sea-Land terminal
agreements. ECT has refused to accept containers at the former Sea-Land facility
tendered by Maersk Sea-Land and is seeking compensation from CSX related to the
alleged breach. CSX has also advised Maersk that CSX holds them responsible for
any damages that may result from this case. Management's initial evaluation of
the claim indicates that valid defenses exist, but at this point management
cannot estimate what, if any, losses may result from this case.
-13-
CSX CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited), Continued
(All Tables in Millions of Dollars, Except Per Share Amounts)
NOTE 10. COMMITMENTS AND CONTINGENCIES, Continued
Other Legal Proceedings
- -----------------------
A number of other legal actions are pending against CSX and certain
subsidiaries in which claims are made in substantial amounts. While the ultimate
results of environmental investigations, lawsuits and claimsthese actions against the company cannot be predicted with certainty,
management does not currently expect that resolution of these matters will have
a material adverse effect on the company's consolidated financial position,
results of operations or cash flows. The company is also party to a number of
actions, the resolution of which could result in gain realization in amounts
that could be material to results of operations in the quarter received.
-13-
CSX CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited), Continued
(All Tables in Millions of Dollars, Except Per Share Amounts)
NOTE 11. BUSINESS SEGMENTS
The company operates in four business segments: Rail, Intermodal, Domestic
Container Shipping, and International Terminals. The Rail segment provides rail
freight transportation over a network of more than 23,400 route miles in
23 states, the District of Columbia and two Canadian provinces. The Intermodal
segment provides transcontinental intermodal transportation services and
operates a network of dedicated intermodal facilities across North America. The
Domestic Container Shipping segment consists of a fleet of 16 ocean vessels and
27,000 containers serving the trade between ports on the United States mainland
and Alaska, Guam, Hawaii and Puerto Rico. The International Terminals segment
operates container freight terminal facilities at 12 locations in Hong Kong,
China, Australia, Europe, Russia, and the Dominican Republic. The company's
segments are strategic business units that offer different services and are
managed separately based on the differences in these services. Because of their
close interrelationship, the Rail and Intermodal segments are viewed on a
combined basis as Surface Transportation operations and the Domestic Container
Shipping and International Terminals segments are viewed on a combined basis as
Marine Services operations.
The company evaluates performance and allocates resources based on several
factors, of which the primary financial measure is business segment operating
income, defined as income from operations, excluding the effects of
non-
recurringnon-recurring charges and gains. The accounting policies of the segments are the
same as those described in the summary of significant accounting policies (Note
1), except that for segment reporting purposes, CSX includes minority interest
expense on the international terminals segment's joint venture businesses in
operating expense. These amounts are reclassified in CSX's consolidated
financial statements to other expense. Intersegment sales and transfers are
generally accounted for as if the sales or transfers were to third parties, that
is, at current market prices.
Business segment information for the quarters ended March 30,June 29, 2001 and
March 31,June 30, 2000 is as follows:
Quarter ended March 30,June 29, 2001:
- ---------------------------------------------------------
Marine Services
---------------------------------------------
Surface Transportation ----------------------------------
-------------------------------- Domestic
--------------------------------
Container International
Rail Intermodal Total Shipping Terminals Total Total
--------------------------------------------------------------------------------------Totals
--------- ------------ --------- ----------- -------------- ------- ------------
Revenues from external customers $ 1,5321,556 $ 265266 $ 1,7971,822 $ 161168 $ 67 $ 228235 $ 2,0252,057
Intersegment revenues - 5 5 - 1 1 6
Segment operating income 166 16 182 (3) 12 9 191219 23 242 7 18 25 267
Assets 12,911 418 13,329 299 795 1,094 14,42312,953 413 13,366 393 834 1,227 14,593
Quarter ended June 30, 2000:
- ---------------------------
Marine Services
----------------------------------
Surface Transportation Domestic
-------------------------------- Container International
Rail Intermodal Total Shipping Terminals Total Totals
--------- ------------ --------- ----------- -------------- ------- ------------
Revenues from external customers $ 1,548 $ 286 $ 1,834 $ 162 $ 75 $ 237 $ 2,071
Intersegment revenues - 5 5 - 1 1 6
Segment operating income 138 20 158 4 18 22 180
Assets 13,140 393 13,533 367 745 1,112 14,645
-14-
CSX CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited), Continued
(All Tables in Millions of Dollars, Except Per Share Amounts)
NOTE 11. BUSINESS SEGMENTS, Continued
Quarter ended March 31, 2000:
- -----------------------------
Six Months ended June 29, 2001:
- -------------------------------
Marine Services
-------------------------------------------------------------------------------
Surface Transportation Domestic
--------------------------------------------------------------- Container International
Rail Intermodal Total Shipping Terminals Total Total
--------------------------------------------------------------------------------------Totals
--------- ------------ --------- ----------- -------------- ------- ------------
Revenues from external customers $ 1,5153,088 $ 283531 $ 1,7983,619 $ 162329 $ 74134 $ 236463 $ 2,0344,082
Intersegment revenues - 5 510 10 - - - 52 2 12
Segment operating income 147 13 160 (1) 14 13 173385 39 424 4 30 34 458
Assets 12,976 389 13,365 338 720 1,058 14,42312,953 413 13,366 393 834 1,227 14,593
Six Months ended June 30, 2000:
- -------------------------------
Marine Services
----------------------------------
Surface Transportation Domestic
-------------------------------- Container International
Rail Intermodal Total Shipping Terminals Total Totals
--------- ------------ --------- ----------- -------------- ------- ------------
Revenues from external customers $ 3,063 $ 569 $ 3,632 $ 324 $ 149 $ 473 $ 4,105
Intersegment revenues - 10 10 - 1 1 11
Segment operating income 285 33 318 3 32 35 353
Assets 13,140 393 13,533 367 745 1,112 14,645
A reconciliation of the totals reported for the business segments to the
applicable line items in the consolidated financial statements is as follows:
MarchQuarters Ended Six Months Ended
---------------------------- -------------------------
June 29, June 30, March 31,June 29, June 30,
2001 2000 ------------------- -------------------2001 2000
------------- ------------- ----------- ------------
Revenues:
- --------
Total external revenues for business segments $ 2,0252,057 $ 2,0342,071 $ 4,082 $ 4,105
Intersegment revenues for business segments 6 56 12 11
Elimination of intersegment revenues (6) (5)
------------------- -------------------(6) (12) (11)
------------- ------------- ----------- ------------
Total consolidated revenues $ 2,0252,057 $ 2,034
=================== ===================2,071 $ 4,082 $ 4,105
============= ============= =========== ============
Operating Income:
- ----------------
Total operating income for business segments $ 191267 $ 173180 $ 458 $ 353
Reclassification of minority interest expense for
International terminals segment 8 89 12 17 20
Unallocated corporate expenses (11) (3) (21) (10)
(7)
------------------- -------------------------------- ------------- ----------- ------------
Total consolidated operating income $ 265 $ 189 $ 174
=================== ===================454 $ 363
============= ============= =========== ===========
-15-
CSX CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited), Continued
(All Tables in Millions of Dollars, Except Per Share Amounts)
NOTE 11. BUSINESS SEGMENTS, Continued
June 29, June 30,
2001 2000
------------- -------------
Assets:
- ------
Assets for business segments $ 14,593 $ 14,645
Investment in Conrail 4,677 4,668
Elimination of intercompany receivables (193) (162)
Non-segment assets 1,432 1,340
------------- -------------
Total consolidated assets $ 20,509 $ 20,491
============= =============
Note 12. SUBSEQUENT EVENT
Subsequent to quarter end, on July 18, 2001, a CSXT train was involved in a
fire inside the Howard Street Tunnel near downtown Baltimore, Maryland. The fire
was not contained completely until July 23, 2001. The fire's proximity to
downtown Baltimore caused disruptions to a number of businesses. The incident
also caused CSXT to reroute traffic and incur higher operating costs. CSXT and
government officials have inspected the tunnel and determined that it is safe
for normal rail operations. Substantially all service through the tunnel has
resumed. At this time, management cannot estimate the ultimate loss relating to
this incident. However, management believes that it will not be material to the
Company's financial position, but could be material to the results of operations
for the third quarter of 2001.
Note 13. SUMMARIZED CONSOLIDATING FINANCIAL DATA -- CSX LINES
During 1987, CSX Lines entered into agreements to sell and lease back by
charter three new U.S.-built, U.S.-flag, D-7 class container ships. CSX has
guaranteed the obligations of CSX Lines pursuant to the related charters which,
along with the container ships, serve as collateral for debt securities
registered with the Securities and Exchange Commission (SEC). The June 29, 2001
and June 30, 2000 consolidating schedules reflect CSX Lines as the obligor. In
accordance with SEC disclosure requirements, consolidating financial information
for the parent and guarantors are as follows: (amounts in millions)
-16-
CSX CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited), Continued
(All Tables in Millions of Dollars, Except Per Share Amounts)
Note 13. SUMMARIZED CONSOLIDATING FINANCIAL DATA -- CSX LINES, Continued
Consolidating Statement of Financial Position
June 29, 2001
CSX Corporate CSX Lines Other Eliminations Consolidated
------------- --------- ----- ------------ ------------
ASSETS
Current Assets
for Business SegmentsCash, Cash Equivalents and Short-term
Investments $ 14,423166 $ 14,423-- $ 390 $ -- $ 556
Accounts Receivable 33 36 1,015 (194) 890
Materials and Supplies -- 16 252 -- 268
Deferred Income Taxes -- -- 114 -- 114
Other Current Assets 5 12 278 (146) 149
---------- ---------- ---------- ---------- ----------
Total Current Assets 204 64 2,049 (340) 1,977
Properties 29 453 17,634 -- 18,116
Accumulated Depreciation (26) (285) (5,064) -- (5,375)
---------- ---------- ---------- ---------- ----------
Properties, net 3 168 12,570 -- 12,741
Investment in Conrail 4,673359 -- 4,318 -- 4,677
Affiliates and Other Companies -- 94 259 -- 353
Investment in Consolidated Subsidiaries 13,212 -- 425 (13,637) --
Other long-term assets 176 67 1,148 (630) 761
---------- ---------- ---------- ---------- ----------
Total Assets $ 13,954 $ 393 $ 20,769 $(14,607) $ 20,509
========== ========== ========== ========== ==========
LIABILITIES
Current Liabilities
Accounts Payable $ 88 $ 76 $ 1,004 $ (153) $ 1,015
Labor and Fringe Benefits Payable 11 11 396 -- 418
Payable to Affiliates -- -- 145 (145) --
Casualty, Environmental and Other
Reserves 1 2 247 -- 250
Current Maturities of Long-term Debt 810 -- 127 -- 937
Short-term Debt 171 -- -- -- 171
Income and Other Taxes Payable 1,283 13 (1,007) -- 289
Other Current Liabilities 41 32 230 (42) 261
---------- ---------- ---------- ---------- ----------
Total Current Liabilities 2,405 134 1,142 (340) 3,341
Casualty, Environmental and Other reserves 1 4 735 -- 740
Long-term Debt 4,694 68 1,008 -- 5,770
Deferred Income Taxes 111 (16) 3,316 3,411
Long Term Payable to Affiliates 396 -- 234 (630) --
Other Long-term Liabilities 315 36 893 (29) 1,215
---------- ---------- ---------- ---------- ----------
Total Liabilities 7,922 226 7,328 (999) 14,477
---------- ---------- ---------- ---------- ----------
SHAREHOLDER'S EQUITY
Preferred Stock -- -- -- -- --
Common Stock 213 -- 209 (209) 213
Other Capital 1,482 171 8,818 (8,989) 1,482
Retained Earnings 4,337 (4) 4,414 (4,410) 4,337
---------- ---------- ---------- ---------- ----------
Total Shareholders' Equity 6,032 167 13,441 (13,608) 6,032
---------- ---------- ---------- ---------- ----------
Total Liabilities and Shareholders' Equity $ 13,954 $ 393 $ 20,769 $(14,607) $ 20,509
========== ========== ========== ========== ==========
-17-
CSX CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited), Continued
(All Tables in Millions of Dollars, Except Per Share Amounts)
Note 13. SUMMARIZED CONSOLIDATING FINANCIAL DATA -- CSX LINES, Continued
Consolidating Statement of Financial Position
December 29, 2000
CSX Corporate CSX Lines Other Eliminations Consolidated
-------------- ------------- ------------- ------------ ------------
ASSETS
Current Assets
Cash, Cash Equivalents and Short-term
Investments $ 285 $ (94) $ 493 -- $ 684
Accounts Receivable 33 65 926 (174) 850
Materials and Supplies -- 15 230 -- 245
Deferred Income Taxes -- -- 121 -- 121
Other Current Assets 12 12 248 (126) 146
---------- ---------- ---------- ---------- ----------
Total Current Assets 330 (2) 2,018 (300) 2,046
Properties 29 455 17,355 -- 17,839
Accumulated Depreciation (25) (276) (4,896) -- (5,197)
---------- ---------- ---------- ---------- ----------
Properties, net 4 179 12,459 -- 12,642
Investment in Conrail 364 -- 4,304 -- 4,668
EliminationAffiliates and Other Companies -- 164 227 (29) 362
Investment in Consolidated Subsidiaries 13,184 -- 386 (13,570) --
Other Long-term assets (205) -- 2,097 (1,119) 773
---------- ---------- ---------- ---------- ----------
Total Assets $ 13,677 $ 341 $ 21,491 $(15,018) $ 20,491
========== ========== ========== ========== ==========
LIABILITIES
Current Liabilities
Accounts Payable $ 102 $ 88 $ 1,036 $ (147) $ 1,079
Labor and Fringe Benefits Payable 5 21 379 -- 405
Payable to Affilitates -- -- 127 (127) --
Casuality, Environmental and Other Reserves 1 3 242 -- 246
Current Maturities of Intercompany Receivables 180 (289)
Non-segment AssetsLong-term Debt 60 -- 112 -- 172
Short-term Debt 749 -- -- -- 749
Income and Other Taxes Payable 1,346 12 (986) -- 372
Other Current Liabilities 39 25 219 (26) 257
---------- ---------- ---------- ---------- ----------
Total Current Liabilities 2,302 149 1,129 (300) 3,280
Casuality, Environmental and Other Reserves -- 4 751 -- 755
Long-term Debt 4,594 54 1,162 1,723
------------------- --------------------- 5,810
Deferred Income Taxes 118 (16) 3,282 -- 3,384
Long Term Payable to Affiliates 396 14 707 (1,117) --
Other Long-term Liabilities 250 43 982 (30) 1,245
---------- ---------- ---------- ---------- ----------
Total Liabilities 7,660 248 8,013 (1,447) 14,474
---------- ---------- ---------- ---------- ----------
SHAREHOLDER'S EQUITY
Preferred Stock -- -- 396 (396) --
Common Stock 213 -- 209 (209) 213
Other Capital 1,467 98 8,958 (9,056) 1,467
Retained Earnings 4,337 (5) 3,915 (3,910) 4,337
---------- ---------- ---------- ---------- ----------
Total Shareholder's Equity 6,017 93 13,478 (13,571) 6,017
---------- ---------- ---------- ---------- ----------
Total Liabilities and Shareholder's Equity $ 20,43813,677 $ 20,525
=================== ===================341 $ 21,491 $(15,018) $ 20,491
========== ========== ========== ========== ==========
-15--18-
CSX CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited), Continued
(All Tables in Millions of Dollars, Except Per Share Amounts)
Note 13. SUMMARIZED CONSOLIDATING FINANCIAL DATA - CSX LINES, Continued
Consolidating Statement of Earnings
Quarter ended June 29, 2001
CSX Corporate CSX Lines Other Eliminations Consolidated
------------- --------- ------ ------------ ------------
Operating Revenue $ -- $ 168 $1,997 $ (108) $ 2,057
Operating Expense (45) 161 1,782 (106) 1,792
------------- --------- ------ ------------ ------------
Operating Income (Loss) 45 7 215 (2) 265
Other Income (Expense) 160 (1) 39 (164) 34
Interest Expense 110 (1) 27 (4) 132
------------- --------- ------ ------------ ------------
Earnings before Income Taxes 95 7 227 (162) 167
Income Tax Expense (Benefit) (22) 3 78 -- 59
------------- --------- ------ ------------ ------------
Net Earnings (Loss) $ 117 $ 4 $ 149 $ (162) $ 108
============= ========= ====== ============ ============
Consolidating Statement of Earnings
Quarter ended June 30, 2001
CSX Corporate CSX Lines Other Eliminations Consolidated
------------- --------- ------ ------------ ------------
Operating Revenue $ -- $ 162 $2,023 $ (114) $ 2,071
Operating Expense (58) 158 1,893 (111) 1,882
------------- --------- ------ ------------ ------------
Operating Income (Loss) 58 4 130 (3) 189
Other Income (Expense) 102 (2) 64 (140) 24
Interest Expense 141 1 39 (42) 139
------------- --------- ------ ------------ ------------
Earnings from Continuing Operations
before Income Taxes 19 1 155 (101) 74
Income Tax Expense (Benefit) (52) 1 77 -- 26
------------- --------- ------ ------------ ------------
Net Earnings (Loss) from Continuing
Operations 71 -- 78 (101) 48
------------- --------- ------ ------------ ------------
Discontinued Operations, Net of Taxes -- -- 7 -- 7
------------- --------- ------ ------------ ------------
Net Earnings (Loss) $ 71 $ -- $ 85 $ (101) $ 55
============= ========= ====== ============ ============
-19-
CSX CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited), Continued
(All Tables in Millions of Dollars, Except Per Share Amounts
Note 13. SUMMARIZED CONSOLIDATING FINANCIAL DATA - CSX LINES, Continued
Consolidating Statement of Earnings
Quarter ended June 29, 2001
CSX Corporate CSX Lines Other Eliminations Consolidated
------------- --------- --------- -------------- --------------
Operating Revenue $ -- $ 329 $ 3,971 $ (218) $ 4,082
Operating Expense (91) 325 3,609 (215) 3,628
------------- --------- --------- ------------ ------------
Operating Income (Loss) 45 4 362 (3) 454
Other Income (Expense) 238 (1) 51 (285) 3
Interest Expense 244 1 65 (47) 263
------------- --------- --------- ------------ ------------
Earnings before Income Taxes 85 2 348 (241) 194
Income Tax Expense (Benefit) (50) 1 115 -- 66
------------- --------- --------- ------------ ------------
Net Earnings (Loss) $ 135 $ 1 $ 233 $ (241) $ 128
============= ========= ========= ============ ============
Consolidating Statement of Earnings
Quarter ended June 30, 2001
CSX Corporate CSX Lines Other Eliminations Consolidated
------------- --------- --------- ------------ ------------
Operating Revenue $ -- $ 324 $ 4,015 $ (234) $ 4,105
Operating Expense (110) 321 3,760 (229) 3,742
------------- --------- --------- ------------ ------------
Operating Income (Loss) 110 3 255 (5) 363
Other Income (Expense) 175 (1) 93 (248) 19
Interest Expense 277 3 73 (80) 273
------------- --------- --------- ------------ ------------
Earnings from Continuing Operations
before Income Taxes 8 (1) 275 (173) 109
Income Tax Expense (Benefit) (54) -- 90 -- 36
------------- --------- --------- ------------ ------------
Net Earnings (Loss) from Continuing
Operations 62 (1) 185 (173) 73
------------- --------- --------- ------------ ------------
Discontinued Operations, Net of Taxes -- -- 11 -- 11
------------- --------- --------- ------------ ------------
Net Earnings (Loss) $ 62 $ (1) $ 196 $ (173) $ 84
============= ========= ========== ============ ============
-20-
CSX CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited), Continued
(All Tables in Millions of Dollars, Except Per Share Amounts
Note 13. SUMMARIZED CONSOLIDATING FINANCIAL DATA - CSX LINES, Continued
Consolidating Statement of Cash Flows
Six Months Ended June 29, 2001
CSX CSX
Corporate Lines Other Eliminations Consolidated
------------ --------- -------- ------------- -------------
Operating Activities
Net Cash Provided by Operating Activities $ (57) $ 18 $ 433 $ (129) $ 265
------------ --------- -------- ------------- -------------
Investing Activities
Property Additions -- (2) (418) -- (420)
Short-term Investments-net 11 -- -- -- 11
Other Investing Activities (884) 1 1,327 (452) (8)
------------ --------- -------- ------------- -------------
Net Cash Used by Investing Activities (873) (1) 909 (452) (417)
------------ --------- -------- ------------- -------------
Financing Activities
Short-term Debt-Net (228) -- -- -- (228)
Long-term Debt Issued 500 -- -- -- 500
Long-term Debt Repaid -- -- (118) -- (118)
Cash Dividends Paid (130) -- (111) 113 (128)
Other Financing Activities 679 76 (1,214) 467 8
------------ --------- -------- ------------- -------------
Net Cash Provided (Used) by Financing Activities 821 76 (1,443) 580 34
------------ --------- -------- ------------- -------------
Net Increase (Decrease) in Cash and Cash Equivalents (109) 93 (101) (1) (118)
------------ --------- -------- ------------- -------------
Cash and Cash Equivalents at Beginning of Period (134) (94) 489 -- 261
------------ --------- -------- ------------- -------------
Cash and Cash Equivalents at End of Period $ (243) $ (1) $ 388 $ (1) $ 143
============ ========= ======== ============= =============
-21-
CSX CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited), Continued
(All Tables in Millions of Dollars, Except Per Share Amounts
Note 13. SUMMARIZED CONSOLIDATING FINANCIAL DATA - CSX LINES, Continued
Consolidating Statement of Cash Flows
Six Months Ended June 30, 2000
CSX CSX
Corporate Lines Other Eliminations Consolidated
------------ -------- ------- -------------- --------------
Operating Activities
Net Cash Provided by Operating Activities $ 10 $ 23 $ 93 $ (130) $ (4)
------------ -------- ------- -------------- --------------
Investing Activities
Property Additions -- (5) (417) -- (422)
Short-term Investments-net 70 70
Other Investing Activities (121) (844) 981 16
------------ -------- ------- -------------- --------------
Net Cash Used by Investing Activities (51) (5) (1,261) 981 (336)
------------ -------- ------- -------------- --------------
Financing Activities
Short-term Debt-Net (105) -- -- (105)
Long-term Debt Repaid -- (72) (72)
Cash Dividends Paid (134) (121) 124 (131)
Common Stock Issued 103 (65) (38) --
Common Stock Retired (51) 51 --
Other Financing Activities 399 (69) 753 (933) 150
------------ -------- ------- -------------- --------------
Net Cash Provided (Used) by Financing Activities 212 (69) 546 (847) (158)
Net Increase (Decrease) in Cash and Cash Equivalents 171 (51) (622) 4 (498)
Cash and Cash Equivalents at Beginning of Period (475) 16 1,085 -- 626
------------ -------- ------- -------------- --------------
Cash and Cash Equivalents at End of Period $ (304) $ (35) $ 463 $ 4 $ 128
============ ======== ======= ============== ==============
-22-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
RESULTS OF OPERATIONS
CSX follows a 52/53-week fiscal calendar. Fiscal years 2001 and 2000
consist of 52 weeks. The quarters ended March 30,June 29, 2001 and March 31,June 30, 2000
consisted of 13 weeks. FirstThe six-month periods ended June 29, 2001 and June 30,
2000 consisted of 26 weeks.
Second Quarter 2001 Compared with 2000
- ---------------------------------------------------------------------------
CSX reported net earnings from continuing operations of $20$108 million, 1051
cents per diluted share for the quarter ended March 30,June 29, 2001, as compared to $25$48 million,
1223 cents per diluted share forin the quarter ended March 31,June 30, 2000. Operating income for the first quarterNet earnings of 2001 totaled $189$55
million, compared with $174 million in the first quarter of 2000 on revenues of $2.03
billion in both years. Operating expenses for the first quarter of 2001 totaled
$1.84 billion compared to $1.86 billion26 cents per share in the prior year quarter include the operations of
the Company's former logistics subsidiary, CTI Logistx, Inc., which was sold in
September of 2000. All periods have been restated to show the logistics segment
as a 1% decrease.
Other expense totaled $31discontinued operation.
Operating income was $265 million in the first quarter ended June 29, 2001, an
increase of 2001 compared to
$540% over the $189 million reported in the same quarter in 2000.
Operating revenues were consistent between the years at $2.1 billion, but
operating expenses were down 5% at $1.8 billion.
Other income was $34 million in the firstquarter ended June 29, 2001, an
increase of 42% over the $24 million reported in the same quarter of 2000, more than offsetting the year over year
increase in operating income.2000. This
was primarily due primarily to the $14 million write-
off of an investment in a non-rail affiliate along with a decrease in interest
income and an increase in net losses from sales of accounts receivable and
expenses fromgains relating to real estate and resort operations.sales.
Surface Transportation Results
- ------------------------------
Rail
Rail operating income for the first quarter of 2001 totaled $166 million,
compared to $147was $219 million in the prior year quarter ended June 29, 2001,
an increase of 13%.59% over the $138 million reported in the same quarter in 2000.
Operating revenue totaled $1.53revenues were consistent between the years, with a slight increase to
$1.6 billion. Volumes were down slightly, but the effectiveness of the pricing
programs more than offset the loss in volume. Operating expenses were down 5% at
$1.3 billion, an increase of $17 million, or 1%, due
primarily toas management successfully removed costs from the exceptionally strong demand for coal. Operating expense was
consistent at $1.37 billion in both years.
-16-network and
operated a more efficient railroad.
-23-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION, CONTINUED
RESULTS OF OPERATIONS, Continued
Surface Transportation Results, Continued
- -----------------------------------------
Rail, Continued
The following table provides rail carload and revenue data by service group
and commodity for the quarters and six months ended March 30,June 29, 2001 and March 31,June 30,
2000:
Carloads Revenue
Quarter Ended Quarter Ended
(Thousands) (Millions of Dollars)
---------------------------------- ---------------------------------
March--------------------------- --------------------------
June 29, June 30, March 31, MarchJune 29, June 30, March 31,
2001 2000 2001 2000
--------------- ---------------- -------------- ----------------
Merchandise------------- ----------- ------------- ------------
Merchandise
Phosphates and Fertilizer 119 131105 123 $ 8975 $ 9275
Metals 82 91 10285 90 105 107
Food and Consumer Products 40 41 58 5343 39 63 55
Paper and Forest Products 122 137 160 168121 135 161 169
Agricultural Products 92 87 125 117
Chemicals 147 154 244 255
Minerals 112 117 100 92 134 122
Chemicals 150 149 250 247
Minerals 95 101 90 95104
Government 2 3 3 7 5
--------------- ---------------- -------------- ----------------8 10
------------- ------------ ------------- -----------
Total Merchandise 711 745 890 889707 748 881 892
Automotive 127139 158 194 227213 238
Coal, Coke &and Iron Ore
Coal 439 396 416 371430 409 415 383
Coke 10 12 11 12 13 13
Iron Ore 513 13 8 3 7
--------------- ---------------- -------------- ----------------------------- ------------ ------------- -----------
Total Coal, Coke &and Iron Ore 454 416 430 390434 436 403
Other - - 18 9
--------------- ---------------- -------------- ----------------26 15
------------- ------------ ------------- -----------
Total Rail 1,292 1,3191,300 1,340 $ 1,5321,556 $ 1,515
=============== ================ ============== ================1,548
============= ============ ============= ===========
Overall freight revenue was significantly higher than the first quarter of
2000 due primarily to an increase in coal revenue and strategic price
initiatives. Merchandise demand decreased from prior year, particularly in the
phosphates and fertilizer group and the paper and forest products commodity
group. Automotive revenue decreased significantly, due primarily to automotive
plant shut downs relating to a weak economy.
As compared to the first quarter of 2000, operations of the railroad are
running smoother in 2001. During the first quarter of 2000, CSX's rail unit was
still experiencing operating difficulties and diminished service performance
relating to the initial integration of operations over the Conrail territories.
In 2001, primarily the result of strategic initiatives begun in mid-2000, CSX's
rail unit has seen improvement in operations and service performance and the
railroad has seen significant improvements in most operating
-17--24-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION, CONTINUED
RESULTS OF OPERATIONS, Continued
Surface Transportation Results, Continued
- -----------------------------------------
Rail, Continued
measures. The improved performance
Carloads Revenue
Six Months Ended Six Months Ended
(Thousands) (Millions of Dollars)
--------------------------- --------------------------
June 29, June 30, June 29, June 30,
2001 2000 2001 2000
------------- ----------- ------------- ------------
Merchandise
Phosphates and Fertilizer 224 254 $ 164 $ 167
Metals 167 181 207 214
Food and Consumer Products 83 80 121 108
Paper and Forest Products 243 272 321 337
Agricultural Products 192 179 259 239
Chemicals 297 303 494 502
Minerals 207 218 190 199
Government 5 6 15 15
------------- ------------ ------------- -----------
Total Merchandise 1,418 1,493 1,771 1,781
Automotive 266 316 407 465
Coal, Coke and Iron Ore
Coal 869 805 831 754
Coke 21 24 24 25
Iron Ore 18 21 11 14
------------- ------------ ------------- -----------
Total Coal, Coke and Iron Ore 908 850 866 793
Other - - 44 24
------------- ------------ ------------- -----------
Total Rail 2,592 2,659 $ 3,088 $ 3,063
============= ============ ============= ===========
As mentioned above, overall volumes were down, but pricing programs
successfully offset the loss in carloads at the railroad. Weakness in the
merchandise and automotive categories was somewhat offset by the strength of the
coal business. Particularly weak in the second quarter were the phosphates and
fertilizer and paper and forest product categories, but again selective pricing
initiatives allowed for the Companycarload shortfall to selectively raise
rates helping offset decreased demand while also enablingbe somewhat overcome. Within
the Company to realize
savings in certain operating expense categories. Increases in fuel expense due
to price increasesmerchandise categories, only food and consumer and agriculture products were
up year over year during the quarter and six months ended June 29, 2001.
Operating expenses decreased by $73 million in the quarter versus the prior
year. Reductions in materials, supplies and other, building and equipment rents,
and Conrail related expenses were the primary components, decreasing $102
million compared to the prior year. A portion of the improvement is related to
reduction in volumes, but is primarily due to the network operating more
efficiently and the gains being realized from the initiatives started in the
latter half of fiscal 2000. These gains were partially offset by increases in
labor and fringe benefits and depreciation. Fuel costs somewhat offset the savings in
other operating expense categories.were consistent between
periods with prices up slightly, but volumes down.
-25-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION, CONTINUED
RESULTS OF OPERATIONS, Continued
Surface Transportation Results, Continued
- -----------------------------------------
Intermodal
- ----------
Intermodal operating income totaled $16was $23 million forin the firstquarter ended June 29,
2001, an increase of 15% over the $20 million reported in the same quarter in
2000. Operating revenues were down $20 million or 7% as compared to 2000, but
this was more than offset by a $23 million or 8% decrease in operating expenses.
These numbers reflect a loss of some of the low margin international
transcontinental freight revenues that intermodal had in 2000 on which the
company incurs a significant amount of other railroad transportation costs.
Inland transportation costs were down $20 million or 6% in the second quarter of
2001 as compared to $13 million in the prior year quarter. Revenue for the
quarter decreased $18 million, or 6%, to $270 million. Operating expense
decreased $21 million, or 8%, to $254 million. The decrease in revenues
represent a slight loss in market share year over year along with the weakening
economy, but this was offset by increased savings in certain operating expense
categories.year.
Marine Services Results
- -----------------------
Domestic Container Shipping
The domesticDomestic container shipping unit reported an operating loss of $3income was $7 million forin the first quarter
of fiscalended June 29, 2001, as compared to an operating loss of
$1up from $4 million in the prior year quarter. Revenues were
up $6 million, primarily the result of increased market share in each trade
lane, mix improvements, and general rate increases in the Hawaii and Alaska
trades. Puerto Rico has continued to experience intense market pressures from
excess capacity. Operating expenses were down quarter over quarter benefiting
from a $4 million cost reimbursement from Corporate in 2001.
International Terminals
International terminals operating income was $18 million in the quarter
ended June 29, 2001, consistent with the prior year. Revenues continued to be
soft as all units were impacted to some degree by the global economic slowdown.
Cost reduction initiatives and marketing efforts to expand ancillary business
revenues offset the decrease in revenues for the quarter.
First Six Months 2001 Compared with 2000
- ----------------------------------------
For the first six months of the year, CSX reported net earnings from
continuing operations of $128 million, 60 cents per share, as compared to $73
million, 35 cents per share in the period ended June 30, 2000. Net earnings of
$84 million, 40 cents per share in the prior year period include the operations
of the Company's former logistics subsidiary, CTI Logistx, Inc.
Operating income was $454 million in the six months ended June 29, 2001, an
increase of 25% over the $363 million reported in the same period in 2000.
Operating revenues were relatively constantconsistent between the years at $161 million for the first quarter of 2001 and $162 million in the prior year.
The Puerto Rico tradelane is continuing to experience excess capacity which is
putting pressure on rates. The results for both the Alaska and Hawaii
tradelanes have improved compared to first quarter 2000.
International Terminals
The international terminals unit reported$4.1 billion, but
operating income of $12 million
for the first quarter as compared to $14 million in the prior year. Operating
revenuesexpenses were $68 million for the first quarter of 2001 as compared to $74
million in the prior year. The decrease in operating revenues and income was
primarily due to the economic slowdown which hit particularly strongdown 3% at the
Company's main terminal in Hong Kong early in the quarter.
FINANCIAL CONDITION
Cash, cash equivalents and short-term investments totaled $621 million at
March 30, 2001, a decrease of $63 million since December 29, 2000.
The primary source of cash and cash equivalents during the first quarter of
2001 was the issuance of $500 million of notes. Cash flow from operations was
neutral reflecting customary seasonal weakness. Primary uses of cash and cash
equivalents during the quarter were property additions, repayments of short-term
debt, and the payment of dividends on the company's outstanding common stock.
-18-$3.6 billion.
-26-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION, CONTINUED
FINANCIAL CONDITION
ContinuedCash, cash equivalents and short-term investments totaled $556 million at
June 29, 2001, a decrease of $128 million since December 29, 2000.
Primary sources of cash and cash equivalents during the six months ended
June 29, 2001 were normal transportation operations and the issuance of $500
million of long-term debt. On a net basis, operations provided $265 million of
cash for the six-month period, reflecting an increase in operating income.
Primary uses of cash and cash equivalents were property additions, repayments of
short-term and long-term debt, and the payment of dividends. Subsequent to June
29, 2001, CSX announced that it was cutting its quarterly dividend by 67% to 10
cents per share. This measure was approved by the Board of Directors on July 11,
2001.
CSX's working capital deficit at March 30,June 29, 2001 was $890 million, down$1.4 billion, up from
$1.2 billion at December 29, 2000. The working capital deficit at both dates
includes approximately $300increased due to
$765 million of long-term debt being reclassified to current during the quarter
as it is due within 12 months. This increase was partially offset by the
reclassification of $350 million in outstanding commercial paper that is classified asfrom short-term
debt to long term due to the fact that it is now supported by the Company'sa new 5 year line
of credit agreement which expiressigned in June 2001. The commercial paper balances had been
classified as current due to the fact that the Company's old line of credit
agreement was to expire in November of 2001. A working capital deficit is not
unusual for the companyCompany and does not indicate a lack of liquidity. The companyCompany
continues to maintain adequate current assets to satisfy current liabilities
when they are due and has sufficient liquidity and financial resources to manage
its day-to-day cash needs. CSX also has $300 million$1.3 billion of remaining capacity under
atwo shelf registrationregistrations that may be used to issue debt or other securities at
the company'sCompany's discretion.
FINANCIAL DATA
- --------------
(Millions of Dollars)
---------------------------------------
March 30,-----------------------------------
June 29, December 29,
2001 2000
------------------- --------------------------------- -----------------
Cash, Cash Equivalents and
Short-Term Investments $ 621556 $ 684
Commercial Paper Outstanding
-
Short-Term $ 478171 $ 749
Working Capital (Deficit) $ (890)(1,364) $ (1,234)
Current Ratio .7.6 .6
Debt Ratio 53% 52%52 % 52 %
Ratio of Earnings to Fixed Charges 1.21.6 x 1.4 Xx
OUTLOOK
- -------
In the remainder of 2001, the challenge will be to continue to improve the
financial performance of the railroad. This willis expected to be accomplished
through continued service improvements, aggressive cost cutting initiatives and
taking
full advantage of revenue synergy opportunitiescontinued success in attracting traffic to move from the Conrail transaction.trucks to CSX. Despite ana
weak economy, that is showing clear signs of at least a short-term slow
down, if not a contraction, CSX expectscontinues to expect to produce full year earnings that will
show an increase from previous years. The coal unit is expected to continue to
offset the decreased demand in other sectors through the remainder of the year.
CSX is hopefulexpects that the second half of 2001
will produce some year over year increases in most, if not all, categories of
rail volumes. On the cost side, the impact of higher fuel costs is
expected to have a negative impact on cost comparisons during the first part of
the year but could be favorable if prices decline throughout the year.
Although CSX World Terminals encountered a difficult first quarter,
especially its main terminal in Hong Kong, it is still expected to produce both
earnings and cash flow levels above 2000's results. Results in Hong Kong
improved late in the first quarter and are expected to continue improving
throughout the remainder of 2001.
CSX Lines continues to struggle with price competition in Puerto Rico, but
other trade-lanes continue to be strong.
-19-volume.
-27-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION, CONTINUED
INVESTMENT IN AND INTEGRATED RAIL OPERATIONS WITH CONRAIL
Background
- ----------
CSX and Norfolk Southern Corporation (Norfolk Southern) completed the
acquisition of Conrail Inc. (Conrail) in May 1997. Conrail owns the primary
freight railroad system serving the northeastern United States, and its rail
network extends into several midwestern states and into Canada. CSX and Norfolk
Southern, through a jointly owned acquisition entity, hold economic interests in
Conrail of 42% and 58%, respectively, and voting interests of 50% each. CSX and
Norfolk Southern received regulatory approval from the Surface Transportation
Board (STB) to exercise joint control over Conrail in August 1998 and
subsequently began integrated operations over allocated portions of the Conrail
lines in June 1999.
The rail subsidiaries of CSX and Norfolk Southern operate their respective
portions of the Conrail system pursuant to various operating agreements. Under
these agreements, the railroads pay operating fees to Conrail for the use of
right-of-way and rent for the use of equipment. Conrail continues to provide
rail service in certain shared geographic areas for the joint benefit of CSX and
Norfolk Southern for which it is compensated on the basis of usage by the
respective railroads.
Accounting and Financial Reporting Effects
- ------------------------------------------
CSX and Norfolk Southern have assumed substantially all of Conrail's former
customer freight contracts. CSX's rail and intermodal operating revenue include
revenue from traffic previously moving onrecognized by Conrail. Operating expenses
reflect corresponding increases for costs incurred to operate the former Conrail
lines. Rail operating expenses after the integration also include an expense
category, "Conrail Operating Fee, Rent and Services," which reflects payment to
Conrail for the use of right-of-way and equipment, as well as charges for
transportation, switching, and terminal services in the shared areas Conrail
operates for the joint benefit of CSX and Norfolk Southern. This expense
category also includes amortization of the fair value write-up arising from the
acquisition of Conrail, as well as CSX's proportionate share of Conrail's net
income or loss recognized under the equity method of accounting.
Conrail's Results of Operations
- -------------------------------
Conrail reported net income of $45$47 million on revenues of $233$229 million for
the firstsecond quarter of 2001, compared to net income of $65$30 million on revenues of
$259$246 million for the prior year quarter. Results forFor the first quarterrelated six month periods
Conrail reported net income of 2000
benefited from a non-recurring gain$92 million on the salerevenues of property$462 million in 2001
and $96 million on revenues of $61$505 million $37
million after-tax.in 2000.
Conrail's operating activities provided net cash of $121$237 million infor the first
quarterhalf of 2001, compared with a net use of cash of $112$1 million infor the first quarterhalf
of 2000. The increase in cash provided by operations is primarily due to
significant one-time payments made to CSX and Norfolk Southern in 2000.
Conrail's working capital was $132$261 million at March 31,June 29, 2001, compared with
$85 million at December 31, 2000.
-20--28-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION, CONTINUED
OTHER MATTERS
Baltimore Tunnel Fire
- ---------------------
Subsequent to quarter end, on July 18, 2001, a CSXT train was involved in a
fire inside the Howard Street Tunnel near downtown Baltimore, Maryland. The fire
was not contained completely until July 23, 2001. The fire's proximity to
downtown Baltimore caused disruptions to a number of businesses. The incident
also caused CSXT to reroute traffic and incur higher operating costs. CSXT and
government officials have inspected the tunnel and determined that it is safe
for normal rail operations. Substantially all service through the tunnel has
resumed. At this time, management cannot estimate the ultimate loss relating to
this incident. However, management believes that it will not be material to the
Company's financial position, but could be material to the results of operations
for the third quarter of 2001.
Surface Transportation Board Moratorium on Rail Merger Applications and ProposedNew
- --------------------------------------------------------------------------------
New----------------------------------------------------------------------------
Rules for Rail Mergers
- --------------------------------------------------
In March 2000, the Surface Transportation Board (STB) issued a decision
establishing a moratorium on rail merger applications for a 15-month time
period. The STB's deliberations on this matter were prompted by significant
public concerns expressed following the December 1999 announcement by the
Burlington Northern Santa Fe and Canadian National railroads of plans to merge
and combine their respective rail systems. The moratorium was instituted to
allow the STB time to address the potential downstream effects that a rail
merger might have on the railroad industry at the present time, and to consider
changes in the rules by which future rail mergers will be evaluated. In October
2000,June
2001, the STB issued proposed new rules for rail mergers that would requirerequires companies to
demonstrate how future mergers would enhance competition and make companies more
accountable for claimed merger benefits and service.
After
considering public comments on the proposed new rules, the STB anticipates
issuing final rules in June 2001.
Federal Court Decision Affecting Coal Mining Operations
- --------------------------------------------------------
In October 1999, a federal district court judge ruled that certain
mountaintop coal mining practices in West Virginia were in violation of the
federal Clean Water Act and the federal Surface Mining and Control Reclamation
Act. The decision, if enforced, could have adversely affected CSX's coal traffic
and revenues if upheld. A federal appeals court overturned the decision on April
24, 2001, ruling that the case should properly have been brought in the West
Virginia state courts.
New Orleans Tank Car Fire Litigation
- -------------------------------------------------------------------------
In September 1997, a state court jury in New Orleans, Louisiana returned a
$2.5 billion punitive damages award against CSX Transportation, Inc. (CSXT), the
wholly-owned rail subsidiary of CSX. The award was made in a class-action
lawsuit against a group of nine companies based on personal injuries alleged to
have arisen from a 1987 fire. The fire was caused by a leaking chemical tank car
parked on CSXT tracks and resulted in the 36-hour evacuation of a New Orleans
neighborhood. In the same case, the court awarded a group of 20 plaintiffs
compensatory damages of approximately $2 million against the defendants,
including CSXT, to which the jury assigned 15 percent of the responsibility for
the incident. CSXT's liability under that compensatory damages award is not
material, and adequate provision has been made for the award.
In October 1997, the Louisiana Supreme Court set aside the punitive damages
judgment, ruling the judgment should not have been entered until all liability
issues were resolved. In February 1999, the Louisiana Supreme Court issued a
further decision, authorizing and instructing the trial court to enter
individual punitive damages judgments in favor of the 20 plaintiffs who had
received awards of compensatory damages, in amounts representing an appropriate
share of the jury's award. The trial court on April 8, 1999 entered judgment
awarding approximately $2 million in compensatory damages and approximately $8.5
million in punitive damages to those 20 plaintiffs. Approximately $6.2 million
of the punitive damages awarded were assessed against CSXT. CSXT then filed
post-trial motions for a new trial and for judgment notwithstanding the verdict
as to the April 8 judgment.
-21--29-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION, CONTINUED
OTHER MATTERS, Continued
New Orleans Tank Car Fire Litigation, Continued
- -----------------------------------------------
The new trial motion was denied by the trial court in August 1999. On November
5, 1999, the trial court issued an opinion that granted CSXT's motion for
judgment notwithstanding the verdict and effectively reduced the amount of the
punitive damages verdict from $2.5 billion to $850 million. CSXT believes that
this amount (or any amount of punitive damages) is unwarranted and intends to
pursue its full appellate remedies with respect to the 1997 trial as well as the
trial judge's decision on the motion for judgment notwithstanding the verdict.
The compensatory damages awarded by the jury in the 1997 trial were also
substantially reduced by the trial judge. A judgment reflecting the $850 million
punitive award has been entered against CSXT. CSXT has obtained and posted an
appeal bond, in the amount of $895 million, which will allowhas allowed it to appeal the 1997 compensatory and punitive
awards, as reduced by the trial judge.
A trial for the claims of 20 additional plaintiffs for compensatory damages
began on May 24, 1999. In July 1999, the jury in that trial rendered verdicts
totaling approximately $330 thousand in favor of eighteen of those twenty
plaintiffs. Two plaintiffs received nothing; that is, the jury found that they
had not proved any damages. Management believes that this result, while still
excessive, supports CSXT's contention that the punitive damages award was
unwarranted.
In 1999, six of the nine defendants in the case reached a tentative
settlement with the plaintiffs group. The basis of that settlement is an
agreement that all claims for compensatory and punitive damages against the six
defendants would be compromised for the sum of $215 million. That settlement was
approved by the trial court in early 2000.
In 2000, the City of New Orleans was granted permission by the trial court
to assert an amended claim against CSXT, including a newly asserted claim for
punitive damages. The City's case was originally filed in 1988, and while based
on the 1987 tank car fire, is not considered to be part of the class action.
Oral argument inOn June 27, 2001, the Louisiana Court of AppealsAppeal for the Fourth Circuit
affirmed the judgment of the trial court, which judgment reduced the punitive
damages verdict from $2.5 billion to $850 million. CSXT has moved the Louisiana
Fourth Circuit Court for rehearing of certain issues raised in its appeal. CSXT
intends to pursue an appeal with regard to CSXT'sthe Louisiana Supreme Court. While this appeal
was held on January 12, 2001. A ruling is expected some
time this year. Anynot an appeal of right, CSXT believes that there are substantial grounds for
review beyond that court is by discretionary writ.the Louisiana Supreme Court.
CSXT continues to pursue an aggressive legal strategy. At the present time,
management is not in a position to determine whether the resolution of this case
will have a material adverse effect on the Company's financial position or
results of operations in any future reporting period.
ECT Dispute
- ------------
Recently,-----------
CSX received a claim in an earlier period amounting to approximately $180
million plus interest from Europe Container Terminals bv (ECT), owner of the
Rotterdam Container Terminal previously operated by Sea-Land prior to its sale
to Maersk in December 1999. ECT has claimed that the sale of the international
liner business to Maersk resulted in a breach of the Sea-Land terminal
agreements. ECT has refused to accept containers at the former Sea-Land facility
tendered by Maersk and is seeking compensation from CSX relating to the alleged
breach. CSX has advised Maersk that CSX holds them responsible for any damages
that may arise from this case. Management's initial evaluation of the claim
indicates that valid defenses exist, but at this point management cannot
estimate what, if any, losses may result from this case.
-22--30-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION, CONTINUED
__________________________________________________
Estimates and forecasts in Management's Discussion and Analysis and in
other sections of this Quarterly Report are based on many assumptions about
complex economic and operating factors with respect to industry performance,
general business and economic conditions and other matters that cannot be
predicted accurately and that are subject to contingencies over which the
company has no control. Such forward-looking statements are subject to
uncertainties and other factors that may cause actual results to differ
materially from the views, beliefs, and projections expressed in such
statements. The words "believe", "expect", "anticipate", "project", and similar
expressions signify forward-looking statements. Readers are cautioned not to
place undue reliance on any forward-looking statements made by or on behalf of
the company. Any such statement speaks only as of the date the statement was
made. The company undertakes no obligation to update or revise any
forward-
lookingforward-looking statement.
Factors that may cause actual results to differ materially from those
contemplated by these forward-looking statements include, among others, the
following possibilities: (i) costs and operating difficulties related to the
integration of Conrail may not be eliminated or resolved within the time frame
currently anticipated; (ii) revenue and cost synergies expected from the
integration of Conrail may not be fully realized or realized within the
timeframe anticipated; (iii) general economic or business conditions, either
nationally or internationally, an increase in fuel prices, a tightening of the
labor market or changes in demands of organized labor resulting in higher wages,
or increased benefits or other costs or disruption of operations may adversely
affect the businesses of the company; (iv) legislative or regulatory changes,
including possible enactment of initiatives to reregulate the rail industry, may
adversely affect the businesses of the company; (v) possible additional
consolidation of the rail industry in the near future may adversely affect the
operations and businesses of the company; and (vi) changes may occur in the
securities and capital markets.
-23--31-
PART II. OTHER INFORMATION
Item 4. Submission of Matters Submitted to a Vote of Security Holders
(a) Annual meeting held May 1, 2001.
(b) Not applicable.
(c) There were 213,322,075 shares of CSX common stock outstanding as of
March 2, 2001, the record date for the 2001 annual meeting of shareholders.
A total of 191,378,321 shares were voted. All of the nominees for directors
of the corporation were elected with the following vote:
Votes Broker
Nominee Votes For Withheld Non-Votes
------- ---------- -------- ---------
Elizabeth E. Bailey 188,484,204 2,894,117 --
H. Furlong Baldwin 188,515,687 2,862,634 --
Claude S. Brinegar 188,399,839 2,978,482 --
Robert L. Burrus, Jr. 184,951,691 6,426,630 --
Bruce C. Gottwald 188,492,739 2,885,582 --
John R. Hall 188,497,273 2,881,048 --
E. Bradley Jones 188,384,176 2,994,145 --
Robert D. Kunisch 188,620,117 2,758,204 --
James W. McGlothlin 146,203,327 45,174,994 --
Southwood J. Morcott 188,596,191 2,782,130 --
Charles E. Rice 188,390,361 2,987,960 --
William C. Richardson 188,584,802 2,793,519 --
Frank S. Royal 188,434,834 2,943,487 --
John W. Snow 187,960,869 3,417,452 --
The appointment of Ernst & Young LLP as independent auditors to audit and
report on CSX's financial statements for the year 2001 was ratified by the
shareholders with the following vote:
Votes Broker
Votes For Against Abstentions Non-Votes
--------- -------- ----------- ---------
188,978,960 1,338,534 1,060,827 0
The CSX Corporation 2001 Employee Stock Purchase Plan was approved by the
shareholders with the following vote:
Votes Broker
Votes For Against Abstentions Non-Votes
--------- -------- ----------- ---------
185,645,802 4,009,693 1,722,826 0
The shareholder proposal regarding change in control employment agreements
failed to pass with the following vote:
Votes Broker
Votes For Against Abstentions Non-Votes
--------- -------- ----------- ----------
45,317,395 115,764,908 5,202,326 25,093,692
-32-
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None3.2 Amended Bylaws of CSX Corporation
(b) Reports on Form 8-K
Form 8-K filed on 1/31/5/4/01 to restate CSX Corporation's financial
statements to reflect the sale of CTI Logistx as a discontinued
operation.
Form 8-K filed on 3/12/01 to announce the public offering of
$500,000,000 aggregate principal amount of the Company's 6.75% Notes
due 2011.disclose related party transactions in
accordance with Regulation FD.
Signature
---------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CSX CORPORATION
(Registrant)
By: /s/ JAMES L. ROSS
-------------------------------------------------
James L. Ross
Vice President and Controller
(Principal Accounting Officer)
Dated: May 2,August 1, 2001
-24--33-